Intraday Trend-Following Entry Bar

One of the biggest questions for traders is when to enter

One of the biggest questions for traders is when to enter a strategy. We looked at some of the main points to consider when it comes to intraday trend-following strategies for stock market indices, such as the S&P 500 and Nasdaq 100. Since most trend-following strategies use a moving average crossover, we started with that. Then we looked at the bars following the cross.

In intraday trend-following strategies using moving average crossovers, the early bars after a crossover often do not have consistently better returns than the later bars, and in some cases may actually have lower risk-adjusted returns. Here's a breakdown of what empirical evidence and practical trading experience show.

1. False Signals Are Common in Early Bars

Immediately after a crossover (for example, 5 SMA crosses 20 SMA), price action is often choppy. These early bars are highly vulnerable to whipsaws, especially in low volume periods or sideways markets.

2. Sustained Trends Often Develop After Some Confirmation

Better intraday returns tend to occur after a trend establishes itself, often 5-30 minutes after the initial crossover. Momentum tends to pick up once volume and volatility increase (for example, after economic news or after the day session market open digestion).

3. Time of Day Effects Matter

Early in the trading session (for example, 9:30-10:00 AM EST), volatility is high, but the price path (price direction) can be erratic. Intraday trend-following strategies may perform better mid-morning (10:00-11:30 AM) or early afternoon, when trends are more directional.

4. Empirical Evidence from Backtesting

Backtests on intraday moving average crossovers (For example, 5/20 SMA on 1-minute, 2-minute and 5-minute bars) generally show:

In other words, the "middle" of the intraday trend often offers the best risk/reward, not the earliest bars.

Why would this be

Moving averages are lagging indicators - by the time they cross, part of the move has already happened. In addition, the crossover point often coincides with short-term exhaustion before a pullback, then a trend continuation. And late trend moves may benefit from momentum or breakout confirmation, which can be stronger than the initial signal.

Conclusion

Don't expect the first 1-3 bars after a crossover to offer the best entry point.

Consider using filters, such as:

• Volume confirmation

• ATR or volatility thresholds

• More specific Time of Day effects

• Higher Time Frame trend alignment (for example, use 15-minute, 60-minute or Daily bars with SMAs or EMAs)

Entering trades during the meat of the trend often yields better results.